Ethics vs. Activists: The Tobacco Experience
[This is the text from the handout at the Canadian Club, Scanned by Stan Shatenstein.]
Ethics vs. Activists: The Tobacco Experience
Notes for a Presentation
Chairman, President & CEO
The Canadian Club
Wednesday, October 16, 2002
Good afternoon ladies and gentlemen.
I am delighted to be back in Montreal today. I was born and raised in this town and have wonderful memories of many things, including watching the Canadiens hoist the Stanley Cup many, many times. In this regard, I guess I may have left at just the right time.
I do get to Montreal regularly, of course, because our manufacturing plant is here on 0ntario Street and almost half of our employees are located in Quebec. Many of our business partners at the retail and other levels also are here in Montreal. It is always great to be here.
The Canadian Club has asked me to speak to you today on the theme: "The lmpact of Professional Ethics on Businesses and on Canadian Society as a Whole."
This is a very appropriate theme for an executive from a Canadian tobacco company. Not only can I talk to you about ethics in business, but equally important, how the perception of your ethical behaviour can affect your business. These perceptions are often not true. But they are almost always very powerful in the minds of the general public - and so they are very difficult to shake.
Before I expand on that theme of the Impact of Professional Ethics on Businesses and on Canadian Society as a Whole, let me give you a brief history of JTl-Macdonald Corp. JTI-Macdonald is a relatively new company. But our roots go all the way back to 1858 when the McDonald Tobacco Company began operations in Montreal - that's nine years before Confederation! The company operated as part of the R-J-R family from 1978 until Japan Tobacco purchased it in 1999 in a transaction involving all the international assets of R-J-R. The creation of Japan Tobacco International - that's the J-T-I part of our name -- marked the start of a new era for our company.
We have very clear and responsible positions at JTI-Macdonald on the key issues. These positions may not satisfy everyone, but I can tell you that they are a genuine commitment to principles including: being open about the risks of smoking; not marketing to children; and recognizing that cigarette smoking is, as the term is commonly used today, addictive.
Unfortunately, the public image of the tobacco industry is not good. Our industry took far too long to address publicly issues regarding tobacco products. We remained silent for too long. We underestimated the strength of public feeling, and as a consequence, we have allowed ourselves to be depicted as extremist and untrustworthy. We must accept our share of responsibility for letting the debate over tobacco become so one-sided.
This legacy has created an environment where tobacco control activists can, and regularly do, make very serious allegations about the ethical behaviour of Canadian tobacco companies. All too often, they offer no facts, no evidence, no proof whatsoever to support what they are saying. Unfortunately, it seems that many people are ready to believe the worst of so-called "Big Tobacco", even if the accusations bear no resemblance to the way the Canadian industry really conducts itself.
Some of these allegations are absolutely outrageous - and extremely damaging - so I would like to take a few minutes to address them.
I would also like to draw your attention to an emerging trend which I believe is very real and very serious: that is, that the types of issues that the tobacco industry faces today could be glaring down at your industry tomorrow.
Let me dispel some of the nastier myths about tobacco companies in Canada. First, as the head of JTI-Macdonald, one of the country's three major tobacco companies, I can tell you categorically, and with total conviction, that we DO NOT market cigarettes to children. This is a very important ethical issue for us. Yet tobacco control lobbyists regularly accuse us of trying to get kids to start smoking. There is not one bit of evidence to support this claim.
Let me give you the essence of our marketing strategy. First, we do not encourage anyone to smoke. But the fact is that there are more than five million smokers in Canada. Our goal is to win as large a share of that adult market as we can. So, our marketing objective is simply this; if you are an adult and enjoy smoking, we would like you to smoke our brands.
The tobacco control activists regularly accuse our industry of deliberately misleading the public about the health risks of smoking and the addictive nature of cigarettes. Let me respond this way: is there anyone in this room who isn't aware that smoking is a risk to your health? Is there anyone in this room who isn't aware that smoking can become an addictive habit? Do you know anyone who isn't aware of these things? And, more importantly, have you ever heard any of our employees suggest that this is not the case?
Let me turn for a moment to the issue of tobacco taxation. In the last 18 months, huge tax hikes have substantially increased the annual government revenues from cigarettes. You might be surprised to know that out of every dollar Canadian consumers spend on cigarettes, 70 cents goes to the federal and provincial governments - that's 7o per cent of the retail price.
These tax increases have punished people who smoke, especially low-income people. The tax increases have also been so severe that there are numerous reports of so-called "tax-free" cigarettes being sold through Indian reserves and by individuals who set up shop along the highway or in the streets of Montreal. Perhaps some of you have seen this yourselves.
In the months to come, you will no doubt hear statistics cited by the tobacco control activists, claiming that higher taxes have dramatically reduced cigarette consumption. Don't be fooled. Legal purchases of cigarettes - that is, the numbers we report regularly to government - may have decreased. But the overall level of consumption, I believe, will be essentially the same, following the same pattern of steady slow decline from previous years. What will distort the statistics, however, is the fact that a certain share of the market has been driven underground - and will therefore go unreported.
The tobacco control activists will tell you that higher taxes will reduce smoking. But when I look at the historical record in Canada, I see no evidence to support that assertion - and goodness knows we've had lots of tax increases on tobacco products in the past.
Just to illustrate what I mean, in 1999 Newfoundland and British Columbia both had very high taxes. Newfoundland had one of the highest rates of smoking, despite these high taxes, and British Columbia had one of the lowest rates of smoking. Ontario, which at that time had the lowest taxes on tobacco, also had a very low rate of usage. Go figure. This whole notion that increased taxes will reduce youth smoking is very, very questionable, at best What higher taxes do achieve, very clearly, are much greater revenues for governments and a much greater financial burden for poor people who smoke,.
Let me give you another example of an outrageous allegation.
For the past six years, Canada's three major tobacco manufacturers have supported a program called Operation I.D. You may have seen the Operation I.D. signs in retail locations, reminding customers of the legal age to purchase tobacco products.
In addition to the signs, Operation I.D. provides training to retailers to help them prevent the sale of cigarettes to minors. The Operation I.D. people have trained thousands of variety store owners and young clerks across the country on how to deal with minors who try to buy cigarettes.
This is important not only because kids should not have access to tobacco, but also because the full force of the law bears down on retailers who make a mistake. Other than a recent change in the law in Nova Scotia, it's not illegal for minors to possess tobacco, nor is it illegal for them to use it. It is only illegal to sell tobacco to minors.
Operation I.D. is a proven program and has delivered excellent results. Those results are measured by independent inspectors and under-age shoppers who test the retailers' compliance with the law.
The feedback from storeowners, municipal politicians and, in several communities, local police, has been extraordinarily positive. They genuinely appreciate Operation I.D. They say the program has been of great benefit to their communities.
But, not surprisingly, the tobacco control activists have a darker vision of Operation I.D. Rather than assessing the program on the basis of its results or getting feedback from store owners or the police, the anti-tobacco activists denounce Operation I.D. as - in their words a "sinister plot" to sell cigarettes to kids. As they see it, the Operation I.D. signs reminding customers of the minimum age are creating a temptation for children!
There's no evidence whatsoever to support the accusations that Operation I.D. is, as the activists describe it, a sinister plot. But that doesn't stop our opponents from attacking the program. Unfortunately, the lack of any evidence does not stop the news media from reporting these allegations either.
What's really mind-boggling about all this is that the tobacco control activists who have been so critical of Operation I.D. and particularly the minimum-age signs in stores, are now pushing their own version of a Youth Smoking Prevention program for retailers. Their version features - are you ready for this? - virtually identical signs reminding customers of the minimum age to purchase tobacco products.
I trust you're getting a clearer sense of how difficult it is to operate a tobacco business, even if we are on our best behaviour.
Tobacco is one of the most regulated industries in Canada, which means that our every move is closely scrutinized by government inspectors and regulators, plus all of the vigilante watchdogs. One false step, one accidental violation, one perceived unethical move and we would be in big trouble. Our behaviour must therefore be absolutely beyond reproach.
The tobacco control activists spend a lot of time claiming that the evil character of our industry is best revealed in the ways we market or advertise our products to children. That has a nice emotional ring to it, and it certainly gets a lot of mileage with the media. But l'll tell you something: the Canadian government has carefully reviewed over 20 years of our company's marketing documents and they have not found one single instance where we targeted minors, let alone children.
So, the Canadian government has carefully reviewed over 20 years of our company's marketing documents and they have not found one single instance where we targeted minors, let alone children.
If just one of the many allegations against our industry were true, l'd probably be in jail right now because that's what the penalty is under the Canadian Tobacco Act. In addition to fines of up to 300 thousand dollars a day for such infractions.
The truth is that JTI-Macdonald takes excruciating care to ensure we are in full compliance with the law, and we make every effort to maintain the highest ethical standards.
For example, a couple of years ago, JTI-Macdonald supported a bill introduced by Senator Colin Kenny that would have imposed a levy on the sale of tobacco products. The money would have been used to conduct research into the causes of underage smoking. This research could also have helped us to understand why young people engage in other risky behaviours, such as underage drinking, drug use and violence.
Unfortunately, the bill was rejected. But I am proud to say that JTI-Macdonald supported it. We supported the bill because ethically, it was the right thing to do and it had the potential to make a real positive contribution to Canadian society.
We feel that is one way among many in which we could contribute to a productive debate that would lead to reasonable regulatory control of tobacco products.
As you can see, I work in an industry whose ethics are on the line every day of the week. We hear all of the allegations over and over again. Sometimes they come from the mouths of people who I thought would be more responsible than to simply parrot accusations without evidence.
When you are constantly exposed to this barrage of accusations, I must admit there are times when I ask myself, "Can any of these allegations be true? Is my industry really like that? Is my company really like that? Am I really like that?"
At the end of the day, no matter what other people may say about you, actions always speak louder than words. I am proud of the way JTI-Macdonald conducts our business. I am committed to making sure we always do the right thing. And I know our people at JTI-Macdonald are honest, ethical and responsible.
I would like to leave you today with what I believe is a very appropriate quotation from the American writer, H.L. Mencken who wrote:
"The urge to save humanity is almost always a false front for the urge to rule." Let me say it one more time: "The urge to save humanity is almost always a false front for the urge to rule."
Thank you for your interest and, I hope, your thoughtful consideration of these very difficult issues.